Between 1997 and 1999 to make big money in the Eurobond markets you bet that the yields of Italy, Spain and Greece would converge with those of Germany. This was brave because it meant ignoring the official, and oft stated, position of the defenders of the D Mark, that Italy, Spain and Greece would not be in the first wave of EMU. At that time the Bundesbank and the European Commission briefed, and persuaded, the vast majority of mainstream economists, traders, analysts and financial journalists that the Maastricht Treaty criteria could not be waived and that the ‘Club Med’ countries would accordingly not be in on day one of 1999 EMU. All the talk and official planning, right up to the last minute, was based on a two speed EMU. Then, at the eleventh hour, politics and history intervened in the colossal shape of Chancellor Helmut Kohl. All three countries, notwithstanding that their debt and deficit numbers were in clear breach of the supposedly ‘legally binding’ Maastricht criteria, were to be in the first wave of EMU. Germany had destroyed Europe twice in the 20th century. Kohl was not going to risk 50 years of diplomatic repair work with a perception that it was Germany, and even worse German officials, that deemed countries first or second class. Facing down protests, and a Constitutional Court challenge, the ‘inviolable’ Treaty provisions, economics, bureaucracy and process were blown away by Kohl’s overriding priority: the continuum of Germany’s post-war diplomatic restoration.

We think the same will happen again with the eventual Brexit settlement. Chancellor Merkel has a photograph of Helmut on her desk. She represents the next chapter of that now 70 year rebuilding process, she is not going to risk destroying it. As the Berlin bureau chief of the Economist noted last week in the New Statesman, there is in Germany “a culture of remembrance and guilt that still dominates the political class”.

So, our 2017-2020 bet is as follows: during 2017-2018 the Commission and Messrs Juncker and Barnier will play ‘bad cop’ (like the Bundesbank did throughout the 1990s). Then, sometime in 2019, possibly at the last summit, Germany will yield. The prospect of a UK recession made in Germany, or a UK that perceives it has been harmed economically by Germany, would threaten the whole post war settlement, NATO and intelligence co-operation – everything Adaneur, Brandt, Schmidt, Schroeder, and Kohl stood for. The UK will be given special status, its special interests (City) will be protected and the mood will be one of togetherness, not bitterness. The US State and Defense Departments will be telling Germany that NATO depends on a willing and energetic UK. Germany will not let Brexit threaten that, however much President Macron wants to boost Paris as a financial centre (another thing Germany will be at pains to prevent).

So, what does this macro view of Brexit mean for UK real estate? Probable further price weakness in London offices and resi during 2017-2018, but a significant (20%+) rebound in 2018-2020. Those overseas investors buying landmark London buildings right now at $1-30 will look super smart in 2020 when the values are 20% higher, rents are rising and sterling is closer to $1-50.